There are substantial penalties for misclassification of independent contractors in San Diego and throughout California. The risk of your business being identified and penalized for independent contractor misclassification has substantially and forever changed due to a recent California Supreme Court ruling.
How has this fundamentally and permanently changed the rules of employment in California? The new law of California is based upon the legal presumption that any California worker is an employee. The legal burden of proof now falls upon the business to prove that an independent contractor meets all three prongs of the new ABC Test created in the recent ruling. It is therefore much easier for any federal or California agency to simply declare your 1099 workers are misclassified. The penalties and financial implications which immediately follow are chilling and may risk the very viability of your company:
- California civil penalty of up to $25,000 per incident (range of $5,000 to $25,000 with most being assessed at $25,000)
- You will be required to place notification of your violation in an easily accessible place to your workers and the general public. This opens the door for plaintiff’s lawsuits and class actions
- You will immediately owe back federal and state income taxes which should have been collected from the “employee”
- The IRS will add 1.5% to that amount and double it to 3% if your company did not file the appropriate 1099
- California will add a 10% penalty for “unpaid taxes.” The failure to withhold and pay payroll tax is a misdemeanor criminal offense in California – fine up to $1,000, a year in jail or both
- You will be required to pay all back employment related taxes including Medicare, Social Security, Unemployment and Workers’ Compensation
The look-back period is four years. This means your business would owe all of these amounts covering up to four years of “employment.” Most independent contractor cases generate a liability of more than $100,000 per worker. This easily threatens the livelihood and viability of many businesses.
Avoid the new huge penalties for misclassification of independent contractors and come into compliance with California labor laws. We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
